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How Municipal Overspending May Affect Your Taxes

Canadian households aren’t the only ones in hot water water for their debt levels; major Canadian metropolises are risking financial crisis if their municipal governments fail to curb spending, according to the Canadian Federation of Independent Business (CFIB).

In a report entitled “Big City Spenders”, the CFIB blasted local governments in Toronto, Montreal and Vancouver where spending has grown more than three times the rate of population over the past 12 years.

“Most of us can appreciate that the cost of running our cities must keep pace with population growth, and factor in the cost of inflation,” says Laura Jones, executive vice president of CFIB. “But our research shows spending is increasing by as much as three to eight times the rate of population growth in Canada’s largest cities.”

Jones points out that although municipal officials “claim they lack sufficient revenue, and argue that cities need even more revenue and increased taxing authority”, the real problem is municipal overspending.

Spending Growth Spurts Outpace Population

From 2000 to 2011 inflation-adjusted spending by Canadian municipalities increased by 55 per cent while the country’s population grew by only 12 percent, says the report – which examined operational spending not capital infrastructure spending.

Public sector wages and benefits account for more than 50 per cent of the increase in Toronto and Montreal and 67 per cent in Vancouver.

“Between 2000 and 2011, city staff in all Canadian municipalities increased by 25 per cent, more than double population growth,” says Mike Klassen, director of provincial affairs for CFIB in British Columbia. “Combine that with wages and benefit packages that are more than one-third higher than comparable occupations in the private sector, and you can begin to understand the causes of overspending by our cities.”

Citizens Paying the Price of Overspending

In the report, Montreal was pegged as in the worst shape with a population growth of five per cent eclipsed by a 43 per cent increase in spending over six years.

Between 2000 and 2011, Toronto’s population grew by eight percent versus a 40 per cent increase in inflation-adjusted spending.

Meanwhile Vancouver saw a 15 per cent population boom contrasted with a 50 percent increase in spending.

According to the CFIB, “if wages, salaries and benefits had been held at private sector levels, a significant portion of spending would have been freed up.”

Salaries Are Dipping Into City Savings

The organization argues that if compensation had been kept on par with private sector norms, municipal governments could have had an additional $1.7 billion in Vancouver and $12.3 billion in Toronto, to tap into, and nearly $4.2 billion in Montreal between 2006 and 2011.

“It’s time that we changed the conversation to move away from the persistent requests for new tax revenues from our local governments to one that addresses spending challenges—responsible policy-making depends on it,” adds Jones.